Duke's new generator will cost $1.8B

By IEVA M. AUGSTUMSAP Business Writer

Wednesday

May 30, 2007 at 10:00 AMMay 30, 2007 at 1:45 PM

Duke Energy Corp. will spend $1.8 billion to build a single coal-fired power unit at its Cliffside plant in Western North Carolina, the company said Wednesday as it prepared to seek its first base rate increase in 16 years.

Duke provided the estimate in a filing with the state Public Utilities Commission, and said building the generator will also require about $600 million in additional financing costs. The company plans to ask the commission on Friday to approve the rate increase, which would boost the typical residential customer bill by about 6.8 percent, or about $7.20 a month.

"While the price of just about everything has gone up, Duke Energy Carolinas' base rates have not changed since 1991 and are more than 27 percent below the national average," said Ellen Ruff, president of Duke Energy Carolinas.

The requested rate increase varies by customer class. General service and industrial customers would see average increases of 2 percent or less.

Ruff said the proposed rate increase, which Duke said isn't tied to the cost of building the new Cliffside generator, would help the company ensure its ability "to provide safe, reliable and economic electric service to our customers while adding to and modernizing the electric infrastructure we need to support North Carolina's continued growth."

To deal with that growth, the Charlotte-based utility initially sought a permit for two new 800-megawatt coal-fired units at its Cliffside Steam Station in May 2005. The company, with 2.2 million customers in the Carolinas, said the generators would be the most reliable way of meeting increasing customer demand for electricity.

In North Carolina, Duke expects a 50 percent increase in demand from 2000 to 2030 from new homes and businesses.

Critics have complained that Duke Energy hasn't seriously considered adding capacity through conservation or renewable fuels, such as solar or wind. Earlier this month, Duke asked the commission to consider new energy efficiency programs that would help the company continue to meet rising consumer demand for electricity.

In what Duke Energy calls its "save-a-watt" model, the company would replace existing energy efficiency programs with new ones and shut down older coal plants. The efforts would be funded by charging customers about 10 percent less than the cost of building and operating new power plants, the company said in its filing.

In February, the utilities commission ruled Duke Energy could build only one generator. At the time, company officials said they needed to determine final cost estimates before deciding whether to proceed with a scaled-down project.

"When you contemplate a one-unit build from a two-unit build, it's a different scale and scope," said James L. Turner, president and chief operating officer of Duke Energy's U.S. Franchised Electric and Gas unit. "We needed to put a team to work to reconfigure the project."

Earlier this month at the company's annual shareholder meeting, Duke Energy Chairman and CEO James E. Rogers told reporters the company is "going to do everything it can" to build the one generator, baring any unforeseen developments.

The new cost estimate is roughly $2 million more than the company originally projected. In March, Duke Energy estimated it would cost $1.53 billion, or $1.61 billion after inflation, to build one generator.

The price increase is due in part to the finalized pricing of some large equipment and components for the generator.

"We've taken much more uncertainty out of the cost," Turner said.

Duke said it will continue to submit updated monthly cost estimate updates to the commission through February 2008.

"While we are not final with the cost estimate, we are reasonably confident that the number will not go up," Turner said.

Shares of Duke Energy were down a penny to $19.38 in morning trading.

Duke Energy supplies and delivers energy to 3.9 million customers. It has nearly 37,000 megawatts of electric generating capacity in the Midwest and the Carolinas, and natural gas distribution services in Ohio and Kentucky. In addition, Duke Energy has more than 4,000 megawatts of electric generation in Latin America.

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